Does Kenanga Investment Bank Berhad (KLSE:KENANGA) Deserve A Spot On Your Watchlist?

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like Kenanga Investment Bank Berhad (KLSE:KENANGA). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Kenanga Investment Bank Berhad

Kenanga Investment Bank Berhad's Improving Profits

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Kenanga Investment Bank Berhad grew its EPS from RM0.0078 to RM0.10, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of Kenanga Investment Bank Berhad's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Kenanga Investment Bank Berhad maintained stable EBIT margins over the last year, all while growing revenue 66% to RM683m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Kenanga Investment Bank Berhad isn't a huge company, given its market capitalization of RM651m. That makes it extra important to check on its balance sheet strength.

Are Kenanga Investment Bank Berhad Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Kenanga Investment Bank Berhad shares worth a considerable sum. Indeed, they hold RM188m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 29% of the company; visible skin in the game.

Should You Add Kenanga Investment Bank Berhad To Your Watchlist?

Kenanga Investment Bank Berhad's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it's worth considering Kenanga Investment Bank Berhad for a spot on your watchlist. We don't want to rain on the parade too much, but we did also find 2 warning signs for Kenanga Investment Bank Berhad that you need to be mindful of.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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